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Ruling

Subject: Superannuation lump sum and terminal medical condition

Question

Is the superannuation lump sum received by a taxpayer prior to death a 'terminal medical condition' payment?

Advice/Answers

No

This ruling applies for the following period

Income year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

The taxpayer was a member of a complying superannuation fund (the superannuation fund).

The taxpayer applied to the superannuation fund for payment of superannuation benefit and received a superannuation lump sum from the superannuation fund in the first quarter of the income year ended 30 June 2012. At the time of receiving the superannuation lump sum the taxpayer was under 55 years of age.

The Taxpayer passed away in the first quarter of the income year ended 30 June 2012 due to a terminal illness.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 303-10

Income Tax Assessment Act 1997 Subsection 303-10(1)

Income Tax Assessment Act 1997 Subsection 303-10(2)

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Regulations 1997 Regulation 303-10.01

Summary of decision

The superannuation lump sum payment received by a taxpayer prior to the taxpayer's death does not qualify as a 'terminal medical condition' payment as the required certification of the terminal medical condition was not obtained prior to the taxpayer's death.

Detailed reasoning

A person with a terminal medical condition is able to access superannuation benefits from their superannuation fund tax-free, provided that the conditions set out in section 301-10 of the Income Tax Assessment Act 1997 (ITAA 1997) are satisfied.

Section 303-10 of the ITAA 1997 states:

(1) This section applies to a superannuation member benefit that:

(a) is a superannuation lump sum; and

(b) is:

(i) paid from a complying superannuation plan; or

(ii) a superannuation guarantee payment, a small superannuation account payment, an unclaimed money payment, a superannuation co-contribution benefit payment or a superannuation annuity payment.

(2) The lump sum is not assessable income and is not exempt income if a terminal medical condition exists in relation to you when you receive the lump sum or within 90 days after you receive it.

'Terminal medical condition' is defined in subsection 995-1(a) of the ITAA 1997, which states:

terminal medical condition has the meaning given by the regulations.

To determine if a 'terminal medical condition' exists, it is necessary to first establish if the following circumstances, as are prescribed in regulation 303-10.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997), exist:

For section 303-10 of the Act, a terminal medical condition exists in relation to a person at a particular time if the following circumstances exist:

(a) two registered medical practitioners have certified, jointly or separately, that the person suffers from an illness, or has incurred an injury, that is likely to result in the death of the person within a period (the certification period) that ends not more than 12 months after the date of the certifications;

(b) at least one of the registered medical practitioners is a specialist practicing in an area related to the illness or injury suffered by the person;

(c) for each of the certificates, the certification period has not ended.

As two registered medical practitioners are required to certify that:

i. the death of the person is likely to occur within the certification period; and

ii. that period ends not more than 12 months after the date of the certifications

it is implicit that the certifications are made prior to the death of the person.

For a superannuation lump sum payment to be classified as a 'terminal medical condition' payment all the circumstances mentioned in regulation 301-10.01 of the ITAR 1997 must be present.

In this case, certifications of the taxpayer's illness were provided by two medical practitioners more than four months after the death of the taxpayer. In other words, death already occurred even before the certification period began. The certifications do not, therefore, meet circumstance (a) mentioned in regulation 301-10.01 of the ITAR 1997.

As there was no certification of the taxpayer's terminal medical condition prior to the taxpayer's death, the superannuation lump sum payment made to the taxpayer does not qualify as a 'terminal medical condition' payment under section 303-10 of the ITAA 1997 and is therefore not tax-free. The Australian Taxation Office is, therefore, unable to accede to your request for a refund of the tax withheld by the superannuation fund in respect of that payment.